HOW TO AVOID

HOW TO AVOID CRYPTO, BITCOIN 'PUMP AND DUMP' SCAMS

23 FEBRUARY 2018

It was only a matter of time. Traditional swindlers have discovered cryptocurrencies. They are using their old techniques to fleece new investors.

The most recent warning comes from the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). While neither agency regulates cryptos, they are warning about emerging scams.

“Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes,” the agencies caution. Describing the fraud as an “old scam, new technology,” the CFTC warned that “same basic fraud is now occurring using little known virtual currencies and digital coins or tokens.”

These days, though, you can’t escape cryptocurrency advertising. It’s everywhere on mobile devices and online. Everyone wants to sell you some kind of cryptocurrency and make you rich overnight.

How do “Pump and Dump” schemes work? Here’s the CFTC’s description:

— “Historically, they were the domain of “boiler room” frauds that aggressively peddled penny stocks by falsely promising the companies were on the verge of major breakthroughs, releasing groundbreaking products, or merging with blue chip competitors.

— As demand in the thinly traded companies grew, the share prices would rise. When the prices reached a certain point, the boiler rooms would dump their remaining shares on the open market, the prices would crash, and investors were left holding nearly worthless stock.

— Some pump and dumps use false news reports, typically about a famous high-tech business leader or investor who plans to pour millions of dollars into a small, lesser known virtual currency or coin.

— Other fake news stories have featured major retailers, banks, or credit card companies, announcing plans to partner with one virtual currency or another. Links to the phony stories are also accompanied by posts that create false urgency and tell readers to buy now.

— Once the pump begins, it can be over in a matter of minutes. In the example above, the buy and sell cycle was over in less than eight minutes.

— Commonly, it is the people pulling the strings who get out first making the most in the scheme, and leaving everyone else scrambling to sell before losing their investment.

— These pump and dumps occur in the largely unregulated cash market for virtual currencies and digital tokens, and typically on platforms that offer a wide array of coin pairings for traders to buy and sell.

— While the scams have been around as long as the virtual currency markets themselves, the number of new virtual currency and digital coin traders has grown substantially, increasing the number of potential victims or unwitting perpetrators.”

What can you do? It’s pretty simple. Here’s what the CFTC recommends:

1) Don’t purchase digital coins or tokens because of a single tip, especially if it comes over social media.2) Don’t believe ads or websites that promise quick wealth by investing in certain digital coins or tokens. Thoroughly research virtual currencies, digital coins, tokens, and the companies or entities behind them in order to separate hype from facts.3) There is no such thing as a guaranteed investment or trading strategy. If someone tells you there is no risk of losing money, do not invest.4) If you believe you may have been the victim of fraud, or to report suspicious activity, contact the CFTC at (866) 366-2382 or visit CFTC.gov.